The Industrial and Commercial Bank of China, the nation's largest lender overall, said this week it expects to receive approval from the country's central bank to pioneer these securities this year.

And an official for China Construction Bank, China's biggest home-loan provider, believes his institution will also begin to sell the bonds in the new year.

"It's hard to say which bank will first get approval," said the official, who declined to be identified.

Mortgage-backed securities are bonds secured by pools of home mortgages. In developed countries, the bonds represent an important means for banks to increase their liquidity and thus make further loans.

Using these financial instruments, a bank doesn't have to wait for a homeowner to fully pay off his mortgage. The bank can immediately cash in the value of the loan by issuing a bond that uses the mortgage as collateral.

Given the relatively high reliability of home-loan repayment, the bonds are considered to be safer than corporate bonds though riskier than treasuries.

As such, Duan Fuyin, an analyst with China Securities' bond department, expects interest rates on the new offerings to be around 3 percent - higher than government bonds but lower than corporate securities.

Even as they await approval, the banks are moving ahead with their plans.

Liu Zikang, manager of ICBC's housing loan department, told a news conference this week that the bank intends to use 20 billion yuan (US$2.4 billion) of its 100 billion yuan in outstanding housing loans to establish a collateral pool for the bonds.

The securities will be sold to institutional investors before being gradually marketed to the public, said Liu.

Meanwhile, the central bank and Construction Bank talked last year with Sydney-based Macquarie Bank about possible partnerships for issuing the mortgage-backed bonds.

Officials at the central bank's monetary policy division declined comment.

The main reason that timing appears ripe for these securities is the rapid growth of the home-mortgage industry.

Mortgages have taken off in recent years as the government dismantles its cradle-to-grave welfare system and encourages individual home ownership.

Construction Bank made 160.6 billion yuan worth of home loans through last October, compared with 86.3 billion yuan in all of 1999.

By the end of last year, housing loans at ICBC totalled 104.8 billion yuan, accounting for 4.5 percent of the bank's total loans. The volume was up 21.4 percent from the year before.

(Eastday.com 01/10/2001)